How much capital do you need to start trading?

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How much capital do you need to start trading?
By Zerodha Varsity • Issue #1 • View online

Welcome
Hello folks, Varsity has a newsletter! We’re starting this based on Sagar‘s suggestion, and we thought it’d be a cool thing. We know you probably have 100s of unread newsletters in your inbox already, but we intend to keep this short and crisp and not waste your time. The goal is to deliver more value per sentence than anything out there.
Like Nithin says, trading is more about psychology than some fancy strategy, and the Innerworth series is probably the best resource on trading psychology out there.
Nithin Kamath
Trading is more about managing fear, greed and psychology than entry/exit strategy.
This collection of newsletters by Marketwise on @ZerodhaVarsity is maybe the best out there on this topic. https://t.co/ANwKTguRek
So, the idea is to summarize one Innerworth article a week every 15 days. Along with that, we’ll pick up some interesting comments from Varsity that you need to know and links to any Varsity chapters that we publish.
From Innerworth
How much money do you need to start trading?
How much money do I need to start trading? This is one question that keeps coming up from people who are new to trading. You can do a back of the envelope calculation on how much it takes to trade one lot of Nifty or Bank Nifty futures or options and assume that’s the money you’ll need. But this isn’t the right way to think about things.
Trading to pay your bills and expenses is probably not a good idea. As the saying goes:
The stock market is the toughest place to make easy money
Let’s say you have Rs 2 lakhs, and you have Rs 1 lakh worth of monthly commitments. If you lose 1 lakh, that’s 50% of your trading capital, and it’s not unimaginable to lose 50% when trading. This Innerwoth post explains the right way to think about this question. This sounds like a very basic question, but quite a few people go wrong.
How to start trading?
If you ask this question, most people will tell you to start paper trading or mock trading and then switch to real money. Sure, there’s nothing wrong with paper trading, but the real trading experience is way different from paper trading. It’s not the fact that real money is on the line, and you’ll have to control your greed and emotions as your P&L keeps charging from red to green. There’s more to this.
Karthik explains a really simple hack to start real trading without worrying about losing too much money in this thread.
Karthik Rangappa
Newbie traders after learning F&O, look for paper trading platforms to practise. It's like the itch to swim after you learn swimming but end up in a baby pool. Experience of an adult pool vs a baby pool is different, likewise with the real markets & paper trading 🧵 (1/11)
New chapters on Varsity
The module on financial modelling is live on Varsity, and we are 8 chapters in. The objective of the module, as Karthik writes, is to help you get a sense of whether a stock you want to buy is overvalued or undervalued.
The end objective of any financial model is to help you build a perspective of valuation. The final output of the financial models is the company’s share price after factoring in everything that matters. You take the share price from the model, compare the share price against the market share price, and figure if the stock is fairly valued, undervalued, or overvalued. The ultimate satisfaction is when you know that the stock is undervalued and available for a throwaway price in the market, trust me on that 
What people are asking on Varsity
A few basic questions that keep coming up in Varsity comments.
Question: Query regarding “Cash & Carry Arbitrage”, If you can help me to understand, in a situation where we have to Sell in Spot and Buy in Futures for a particular stock, how to we are going short the shares in Spot and carry it till the end of expiry. Please let em know if I am missing something.
Answer: It’s not possible to be short in the spot and carry it forward. You will have to borrow and short the stock in SLB (Stock Lending & Borrowing), and it’s a bit complex. Here’s what SLB is and how it works.
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Question: Please consider the following from your definitions:
“European Options – If the option type is European then it means that the option buyer will have to mandatory wait till the expiry date to exercise his right.”
Does it mean I can not exit my call option before the expiry date? I have read 100s of answer on more than 50 platforms that one can exit from the call option before expiry date.
Suppose, I buy ABC call option at strike price Rs. 50 (premium Rs. 2) which expires on October 28, 2021. Let the spot price on October 22, 2021 is Rs. 80. Can I sell my call options at this spot price? If no, then no interpretation is needed. If yes, suppose I sold as mentioned and on Oct 28 (day of expiry)  price goes back down to 45, what will happen?
Answer: You can exit, but you cannot exercise the option. To exit an option is different from exercising an option. You can check out the options module on Varsity for more.
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Thanks for reading the first issue😀
We’ll keep trying to make this better and more useful for you. But the fastest way that we can make this better would be based on your feedback, so please let us know your thoughts and suggestions on this tweet.
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Zerodha Varsity

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